Questions about Obtaining and Repaying Student Loans

How will my credit score effect my ability to get the funding I
need for graduate school? If my credit is not great, will I be able
to get the loans I need to cover my college costs?
— Katy C.

The federal Stafford loan does not depend on your credit history. As a
graduate student you will be able to borrow up to $20,500 a year and
$138,500 in total (including undergraduate debt) from the Stafford
loan program. The Stafford loan limits are $40,500 a year and $224,000
in total at certain medical schools.

If you need more money than is available through the Stafford loan
program, you may be able to borrow money from the federal Grad PLUS loan
program. This is similar to the Parent PLUS loan for parents of
undergraduate students, but with the graduate or professional student
as the borrower. The PLUS loan has no aggregate limit, and the annual
limit is based on the college’s cost of attendance minus other aid
received. Eligibility for the Grad PLUS loan depends on your credit
history but not your credit score. PLUS loan borrowers must not have
an adverse credit history which is defined as having had a
foreclosure, repossession, tax lien, wage garnishment, default
determination or bankruptcy discharge in the last five years, or a
current delinquency of 90 or more days.

If you don’t qualify for the Grad PLUS loan, your options are
limited. Students who do not qualify for a Grad PLUS loan are unlikely
to qualify for a private student loan because lenders usually have
stricter credit underwriting criteria for private student loans than
for federal student loans. This can include requiring a minimum credit
score, using a 7 or 10 year lookback for bankruptcy discharges,
disallowing current delinquencies of 60 or more days, and requiring a
creditworthy cosigner. Some graduate schools may have their own loan
programs or a Perkins loan allocation.

I am scheduled to start repaying my student loans soon, but I am
currently unemployed. What are my options?
— Richard L.

There are several options for federal education loans.

The income-based repayment plan
bases your monthly payments on a percentage of your discretionary
income. Discretionary income is based on the amount by which your
adjusted gross income (AGI) exceeds 150% of the poverty line. If your income
is at or below 150% of the poverty line your monthly payment will be
zero. AGI is based on the prior year’s income tax returns. However,
during the first year you elect to use income-based repayment or if
there has been a drop in your income the lender will require you to
complete a form documenting your current income.

Another option is to use the economic hardship deferment.
This suspends your repayment obligation for up to 3 years if you are
unemployed or have very low income. The government will pay the
interest on any subsidized Stafford loans (or the portion of a federal
consolidation loan that repaid subsidized Stafford loans). The
interest on unsubsidized loans continues to accrue and is capitalized
(added to the amount owed).

If you’ve already exhausted your eligibility for the economic hardship
deferment, you may be able to get a forbearance for up to 5 years. The
difference between a deferment and a forbearance is that the
government does not pay the interest on subsidized Stafford loans in a
forbearance. Instead you are responsible for the interest on all your
loans and it will be capitalized if you decide to not pay it during
the forbearance.

Options for private student loans are more limited. Most lenders will
offer forbearances in three month increments for up to a year in total
duration. Some lenders charge a fee for a forbearance. You are more
likely to get a forbearance if you agree to make interest-only
payments during the forbearance instead of capitalizing the
interest. The economic hardship deferment and income-based repayment
are not available for private student loans.

One of my current colleges says I should consolidate my loans since
I have reached my subsidized limit and also have very little left in
unsubsidized. They say that this will allow me to get more subsidized
Stafford loans. Will I have to start repaying the loans if I
consolidate? Will I qualify for more money?
— Amanda H.

This advice is not accurate. The percentage of a consolidation loan
attributable to an underlying subsidized or unsubsidized Stafford loan
is counted against the corresponding aggregate loan limits.
Consolidating your loans will not make you eligible for
additional Stafford loans, subsidized or unsubsidized. This is per the
regulations at 34 CFR 682.204(j) and 34 CFR 685.203(h).

Perhaps the college is confused about the treatment of capitalized
interest? Capitalized interest is not counted against the aggregate
limits, regardless of whether the loans have been consolidated or
not.

You can consolidate your loans only if they are in the grace period or
repayment period. You cannot consolidate them if you are still
in an in-school period. If you consolidate your loans in the grace
period you will lose the remainder of the grace period. Repayment
begins within 60 days of consolidating the loans. However, if you
re-enroll in college you may be eligible for an in-school deferment on
the loans.